This is my first post to any forum...Thanks JD for the great resource.

I have recently been meeting with a Dave Ramsey ELP financial advisor in my area. She has gone over my file and has me investing in Black Rock's Global Allocation. (MALOX) I have done research on the fund and it looks well diversified and shows an 18% return over the past 5 years.

My question to all of the more experienced investors (I'm 20):

How do you feel about using an ELP (who I suppose is more of a broker/advisor)?

Can you help me understand the expenses associated with this fund as well as using this advisor?

How to you feel about Blackrock Global Allocations (MALOX) as a fund? Have I overlooked anything?

Thank you in advance.

MALOX is an institutional share class, that means you are either planning to invest at least $2 million, or it is part of a wrap program, meaning there is a wrap fee in addition to the fund expense. Are you sure on the ticker symbol? Do you know if there is a wrap-account fee?

If the ELP works for or is associated with a brokerage, they will not be recommending low-cost strategies. Cost is the only part of investment returns you have any control over. Control what you can.

Dave Ramsey often refers to brokers that sell loaded funds as potential teachers, and that a mutual fund sales load is compensation for that person teaching you, and that they won't make much anyway on small purchases. The problem is, every lesson plan will revolve around only those investments that could put money in your teacher's pocket, not just because of the money, but because the broker likely does not believe in the merits of other investments.

Thanks Dylan for the response. Here are some figures from my paperwork. I have only invested $1000 with her just to get started, but I also just sent her a check to max out my IRA (which has not yet been cashed).

New England Securities
Brokerage Account Statement

"You Bought:

Blackrock Global Allocation Fund Inc Class A
009050963 Sales Load=5.25%
Symbol MDLOX You were right, I had that wrong."

So for each $1,000 you invest, the value of your investment becomes $947.50 and $52.50 gets paid to the broker and a cut is paid to the rep for placing the order (BlackRock also gives her free golf balls, sweatshirts, and other trinkets to say thanks for all the orders). You need just over a 5.54% return just to get back to your starting amount. Then even if you never talk to the broker again, you continue to pay a .25% trailing commission every year. I think there are more cost effective ways to invest. If you think so to, call her up before that new check gets cashed.

If you think you are paying for better performance, think again. The fund was chosen for you because it shows an 18% return for the past 5 years making the 5.25% load and 1.something% annual expense easier to swallow (brokers call this "tailwind selling"). However you didn't own the fund for the last five years, and odds are the broker was recommending a different fund five years ago that had a good 5-year track record back then.

Past performance has nothing to do with future returns. Have a look at these charts.




Source: http://www.indexfunds5.com/step5page2.php#53

Wow...those graphs are scary. I can't tell you how much I appreciate the feedback Dylan, but I understand your a busy man and usually get paid giving me the information you already have. Please feel free to let me know if I'm crossing the line but here is a little info about my situation.

I own my own business and have a significant amount of money to invest monthly so I want to make sure I do this right.

I am currently 20 and by the time I'm 30 years old I would like to go into missions overseas with my wife without financial burdens. I have therefore set up two retirement funds- My taxable account (which we have been discussing) and my Roth IRA. My hope is to fund the taxable account with enough money to sustain us overseas (an early retirement of sorts), and max my IRA every year (for traditional retirement).

I just got off the phone with my advisor and she said while Blackrock does have a moderately high expense load, she reccomended it because over the past 20 years it has done "very well" in bear markets, which makes it worth the expense to be actively managed in these times.

The problem is that the goal of all actively managed funds is to beat the market, and yet few of them do.

Why not just put the money in a cheap index fund?

Please do as much research on your own that you can, but I hear that same line from people selling funds ALL THE TIME. I have my 401(k) through American Funds, and if I had a choice, I would dump them...that is the kind of stuff they tell me. Now, I am a big believer in Vanguard's business model. Very low fees, non-profit company, and I favor primarily their index funds. It is VERY HARD to beat the market, and very few actively managed funds do it. Take their fees into account and its even less. The line they usually give to justify you paying what you do, is exactly what that lady said .... oh, we will protect you more during the bear markets. You would really have to study the results of the funds she is recommending to see if that is true.

I don't mind answering questions that everyone could benefit from. Plus, I like to expose some of the brokerage world's little secrets.

There is a reason that any global allocation fund would do "very well" in bear markets and it has nothing to do with the fund's management. Hint: asset allocation is used to minimize volatility caused by any one market.

Is there any way that the original poster could bring this to Dave Ramsey's attention that his ELP's are fleecing clients? Why is Dave not recommending index funds, especially for new investors?

I'm sure he knows what the ELPs are recommending as he has spun the "good reasons" for paying MF loads and ERs in the "neighborhood" of 1% on his radio show.

I've looked into the ELP program. In order to become one, you must be at a FINRA (formerly NASD) member firm. This rules out all fee-only advisers and only includes people that sell securities (FINRA regulates the sale of securities). So it's unlikely that an ELP will ever recommend direct purchase, low-cost, no-load index funds. I suspect it is a business decision on his part to keep sponsors happy.

Hello,
I listen to Dave Ramsey often, bought his book and went to one of his live events. I recently contacted one of his ELPs and of course was sold American Funds for our Roth IRA's. Yesterday my 20 year old daughter spoke with the ELP (she listens too, and read his book, and has no debt) and is planning on sending them $2000 to invest in American Funds and is also going to have $500 automatically invested each month. I was confident we were doing the right thing, but now I am not so sure. I am becoming (a little late) more educated about load and no load funds. I really am reluctant to send that $2000 check we wrote last night. Would it be better to just go to Fidelity or Vanguard?

It is making me wonder now that I have learned that the ELPs pay for the privilege of having Dave endorse them, and on Dave's website he is all about load funds being just fine. Maybe they are. I would appreciate any input that will help me think through this, so I don't give my daughter a bum steer, like I have gotten so many times from financial advisors. (can you say Variable Annuity?)

I also listen to Clark Howard, and he really likes Fidelity and Vanguard, among others. What made me start researching this a little more was that American Funds was not one of Clarks recommended places to invest with. I wanted to find out why.

Thanks!

Cinnamongirl, you can drag your heels on this for a few years while the bug in your ear tells you something is wrong, or you can go with your gut and do what you know is right.

You and your daughter are smart to know that you must save and invest wisely. However, going to through this ELP scheme is sort of like saying 'I know I need a car to get to and from work. I'll just go to a car dealership and they'll tell me what is best for me and how much I should pay'. You need financial advise, but you don't need to donate your hard-earned dollars to the nice lady who tells you that undercoating is really a must-have. Donate that money to charity, or to your own savings.

Dump the ELP and Dave Ramsey's money-machine. Open a Vanguard account and send them your 2K: https://personal.vanguard.com/us/OpenAccountController?origin=home

Stop drinking the ELP Kool-Aid and have a sip of nutritious and delicious GRS: http://getrichslowly.org/forums/viewtopic.php?t=1560&highlight=

Edit: Adding responses to OP questions.
How do you feel about using an ELP (who I suppose is more of a broker/advisor)? Do not use an ELP. Purchase directly through Fidelity, Vanguard, or the like and use an advisor at an hourly rate.

Index funds outperform managed funds 80% of the time in any given year. Understand that the other 20% (those outperforming the market) are not the same year to year (or X-year period to X-year period). In short, you are paying the advisor, fund manager, and brokerage houses a premium for an historical winner with an 80% chance of being a future loser.

I don't like paying anyone for the privilege of purchasing a product, so I don't like the fund. I feel that a transaction is fair if neither party has to pay to get to the bargaining table.

You've overlooked the cash incentives your advisor has to sell you something that is best for her, not you.

Clark's got the better advice here. I deal with Vanguard directly, and their customer service is excellent.

(I actually know Clark personally, so, I may be biased)

Thanks Becca for the advice. You make total sense. I like Dave Ramsey: i think he does a lot of good. I wish he had been around when I was 20 to tell me to stay out of debt and save money. My daughter will make better decisions because she listens to him. Having said that, I think he is totally in it for the money. He touts his ELPs, saying they have the heart of a teacher, never mentioning they have to pay him to have the honor of being an ELP. That seems like such a conflict of interest. He also pushes Zander insurance for identity theft protection, and I think that is one of his companies too.

Now that we have some American Funds for our Roth IRAs, and have rolled several retirement accounts (40,000) into American Funds and have already taken the hit, should we just leave them there now? I have set up automatic withdrawals to add more to them each month. Should I rethink that?

Thanks again for your help,

Cinnamon

You are making the assumption that Dave Ramsey recommends index funds, which he definitely does not. He ALWAYS assumes a 12% return on investment in the stock market in growth stock mutual funds, and he recommends going to a broker to get those. He says it isn't hard to beat the market, just choose good mutual funds. I'd like a chart of the success that his ELP's have had with picking mutual funds for their customers, I bet it looks a lot like the charts in this thread.

Dave Ramsey is good for turning people around who are already leading a negative cashflow lifestyle, but there are a lot of things that he teaches that I don't agree with.

Cinnamon, if you have already opened a Roth IRA with their mutual funds, I am not sure how to roll it into a different Roth IRA into different funds... You can ask Vanguard directly about that. However, if I could without much additional cost, I would.